Sales and Use Tax Guide for Construction Contractors

The following provides a brief summary of
Sales and Use Tax information for construction contractors. The
Sales Tax Law levies a 3
1/2% contractor's tax on all non-residential construction
activities when the total contract price or compensation
received exceeds $10,000.00.

Material Purchase Certificate (MPC)

Prior to beginning work, the prime contractor(s) is required to apply for a
MPC for the contract .You may apply for a MPC on TAP. For
non-residential contracts exceeding $75,000.00, the contractor's tax and any use
tax due must be paid before work begins. An exception to paying the taxes due requires that a surety bond is filed with the DOR
to guarantee payment of the taxes. All contractors without a physical location in Mississippi
are required to prepay the taxes due or bond all contracts over $10,000. Contractors with
a physical location in Mississippi are required to bond or prepay the taxes due on all contracts over $75,000.

The 3 1/2%
contractor's tax is imposed against the prime contractor
and is due on all non-residential, commercial contracts regardless of whether or not the owner is a
governmental, exempt, or non-profit entity. As example
construction contracts for the U.S. Government, the State of
Mississippi, a non-profit hospital, or a church are subject to the
tax.

Residential construction (not including apartments or
condominiums) is excluded from the 3 1/2% contractor's tax, but is subject to retail sales
taxes.

3 1/2%
contractor's tax on contract price for non-residential construction. No sales or use tax on purchases of
component materials and services.

7% sales tax on gross income for residential construction. No sales tax or use tax on purchases
of component materials and services.

Bidding Formula

The 3
1/2% contractor's tax is levied on the total contract amount
or total compensation received. The following formula
may be used to compute the total tax that will be due on a
particular project:

Total Contract Before x 1.0362694 =
Total Contract Amount

3 1/2% Tax Including 3 1/2% Tax

Example: All items including labor,
material, profit, overhead, etc., before computing the 3 1/2% contractors tax is $100,000.00. Multiply
this amount by the factor (1.0362694) to compute the amount of
the total contract that includes the 3
1/2% contractor's tax.

$100,000.00 x 1.0362694 = $103,626.94

The total amount of $103,626.94
should be the amount of the bid and the amount to qualify the
contract with the DOR.

Calculation of the tax due:

$103,626.94 x 3 1/2% = $3,626.94

Contractor's Bond

The prime contractor on all
non-residential construction contracts exceeding $75,000.00 and
taxable under Section 27-65-21 of the Sales Tax Law is required
to furnish a bond guaranteeing the payment of sales, use,
income, franchise, withholding and other motor fuel (diesel fuel)
taxes due on the contract, or pay the sales and use taxes
before commencing work. A prime contractor domiciled outside
Mississippi must either file a surety bond or prepay the sales
and use tax on contracts exceeding $10,000.00.

A Tax Rider, Form 72-440, with a copy
of a performance and/or payment bond for either public or private
construction contracts is acceptable. You must have filed a copy of the performance and/or
payment bond for which the Tax Rider is executed with the DOR..

A Job Bond, Form 72-441, may be
executed for each contract and filed with the DOR..

No limitation (contract amount, tax
amount, etc.) should be included on the face of either the tax
rider or the job bond. Any rider or job bond having such an
amount will not be accepted.

A Blanket Bond, Form 72-442, may be
filed provided it is of sufficient amount (use a factor of at
least 4%) to cover the aggregate tax liability on the total
amount of all contracts that will be outstanding at any one time.
The amount would have to be based on an estimate made by the
contractor and would be subject to adjustment. The bond must be
sufficient to cover the liability for sales, use, income,
franchise, withholding and other motor fuel (diesel fuel) taxes.
The effective date of a blanket bond must be prior to the
estimated starting date of the contracts which it covers.

On all the above bonds, the agent's signature must be legible, or the bond will
be returned. His name should be printed or typed below his
signature. The bond must have the original seal of the
bonding company.

Use Tax Requirements for Construction Contractors

Rentals and purchases of work
equipment, tools, building forms, repair parts for work equipment
and similar tangible personal property (or non-component materials
and supplies) to be used in the performance of construction work
are subject to the regular retail rate of sales or use tax. An
out-of-state contractor or subcontractor
incurs a use tax liability when property of this type is imported
into Mississippi for use.

If the property has been used in
another state, the regular retail Mississippi Use Tax is due on
the fair market or net book value of the property at the time of
importation. Automobiles and trucks (10,000 pounds and less)
without special-mounted equipment, are subject to the special 5%
Use Tax. Automobiles and trucks over 10,000 pounds are taxable at
the 3% tax rate. (Net book value is to be computed by using
straight-line depreciation only and shall not be less than 20% of
original cost.)

Except for automobiles and trucks
first used in this state, credit for Sales or Use Tax paid
another state in which the property was acquired or used may be
taken in computing the amount of Use Tax due Mississippi. Such
credit must be computed by applying the rate of Sales or Use tax
paid to another state to the value of the property at the time it enters
Mississippi.

Any use tax due is reported on TAP on the Use Tax return in the table labeled Schedule of Equipment for Use in
Mississippi.

You will be required to file use tax
returns periodically while you are engaging in business in this
State. Non-taxable returns should be filed when there is no tax
liability. Use tax must be filed separately from your sales tax
on the Use Tax return.

Sales Tax Registration Requirements

Prior to any person continuing or
engaging in any of the activities described in this Web Page a
Sales Tax Permit must be obtained. A Registration Application must be completed in order to procure a Sales Tax
Permit for each business location. Register online using TAP.

No person shall be issued a Sales Tax
Permit or be allowed to conduct any business activity within this
state until such time as all requirements of the Mississippi
Sales Tax Law have been met.

Filing Returns

Sales tax returns are due and payable
on or before the 20th day of the month following the period in which the tax accrues. As example,
sales taxes due on sales occurring in May must be filed online, or postmarked by
June 20. Returns and payment must be filed online or postmarked by the due date
in order to be considered timely filed. When the
due date falls on a weekend or holiday, returns and payments must
be filed online or postmarked by the first working day following the due date to
be considered timely filed.

Sales tax returns should be filed for all
appropriate periods even though no taxes may be due. Failure to
file returns as required may result in assessments against the
taxpayer until such time as all delinquent returns are filed and
all taxes due are paid.

Penalties are due on late payment of
sales taxes and /or for
failure to file Material Purchase Certificate (MPC) applications
as required. There are more severe penalties
for continued failure to comply with the provisions of the
Mississippi Sales Tax Law.